BluefoxToday blog : June 2008

The housing and mortgage markets are having a less than robust time these days and that is like an invitation to scam artists who know a thing or two about the real estate business. They generally go for the homeowners struggling with their finances, in other words the ones who are rather susceptible to any sort of a solution that could bail them out. But they also increasingly seek out those who are just plain, payment-making homeowners, preferably with plenty of equity on the property.

One of the latest tricks according to the FBI is house stealing. The whole sequence begins with the owner's identity being swiped. After that the swindler generates a false Social Security card and often other IDs. Now he gets his hands on some needed and widely-available forms, fabricates the necessary signatures, files the paperwork with the local authorities and this way manages to transfer the house to another name.

This maneuver works best on vacant homes, preferably with good equity. Las Vegas for instance has an ample supply of them today, empty bank REOs are all over the place and as a resort destination there are thousands of vacation properties throughout the valley that are only occupied intermittently.

Then comes the real move. The crook now puts the property up for sale, unloads it to a trusting prospect that likes the attractive price and smiles all the way to the bank with his profits. Just like that. In the process the happy home buyer got stung, as did the real owner and the mortgage lender that made the loan.  

Identity theft of course continues to be a major problem nowadays. Each and every year over 8 million people become victims and the losses associated with it reach beyond $15 billion annually, according to the Federal Trade Commission. U.S. Secret Service, tasked with prosecuting federal cases, says that half of the time a business was somehow the source of the pilfered private information. Regardless, it pays to keep a wary eye on anything unusual in your financial statements and other official paperwork.

The one-time king of the hill of mortgage lending is now being continuously hounded by lawsuits from just about all corners of the spectrum. Company shareholders, employees and borrowers have already filed a pile of legal action against it and to make matters worse several states just now decided to join the increasingly far-reaching tussle.

California, Illinois and Washington each filed their own particular lawsuits, claiming for instance that Countrywide employed "misleading marketing practices", maneuvered borrowers into "risky and costly mortgage loans" without having the ability to pay them back and that it used "unfair and deceptive practices" in marketing loan products. That is pretty heavy material and if it's true, then the lender should be held liable.

If at least some of this can be proved in the courts, Countrywide could be directed to pay restitution to its borrowers. That's exactly what the states are seeking with their legal action. The restitution could be the return of all the profits the lender made off a chunk of loans and perhaps even go as far as having to hand back foreclosed homes. Wouldn't that be something? In the year 2008 Joe Homeowner was foreclosed out of his house and in 2010 Joe gets a letter in the mail saying that he just got his old house back. That surely would make Joe scratch his head. Anyway, affected people in California, Illinois and Washington should be following closely how these lawsuits play out in the coming months, although it more likely will take years before they all are sorted out.

Another thing is that Bank of America is about to close on the purchase of Countrywide, an action that now looks a little questionable. When it first made the offer, B of A probably wasn't aware of all the potential problems that would come with the deal. Now it's too late to back out, so it just has to put aside a truckload of money to cover possible restitution and other costs associated with these lawsuits. Some experts have figured that Countrywide-related write-downs could go as high as $9 billion. A tidy sum.

Most of the U.S. is still mired in a real estate slump, in a deep one in some areas and in a little shallower one in others. Las Vegas probably belongs to the deeper customer type, although it's now trying to lift itself off the gutter. Sales numbers here are up and price declines are stabilizing which make for the good news. Inventories do remain too high, though, accounting for the bad news. Anyway, that's the less-than-rosy picture in the summer of 2008.

Let's look ahead to the next decade, from 2010 to 2020, and see what might happen then with the national real estate market. Harvard University's Joint Center for Housing Studies just released its latest review, "State of the Nation's Housing 2008". It optimistically says that housing demand continues at a healthy pace throughout the time period due to a steadily expanding population.

Two important demographic factors that weigh heavily here are the estimated annual immigration at 1.2 million and the gradual rise of life expectancy among baby boomers. These trends have been around for a while now, so no surprise there.

The more notable development is in the social trend sector. Americans are divorcing at an increasing clip and also are tying the knot later, if at all, which then translates that single-person home ownership is becoming the fastest-growing household class. With that in mind, the size of the future home is likely to shrink and it could also mean that they will prefer condos and townhouses over the more work-intensive single-family houses.

The study also points out that during the next decade household growth in U.S. will exceed 1.4 million each year. It makes for a healthy housing demand and is expected to return the real estate market to a solid footing once again.

Las Vegas real estate market is bursting with bank REOs, real estate owned in industry talk, and many of these are listed at prices that were unthinkable just a few months ago. Single-family houses, condominiums, townhomes, they all are represented in this one large housing bazaar teeming with activity in our desert valley. Of course there are regular listings as well that could offer good value, but the REOs are the hot ticket right now.

To make it easier to snap up one of these REOs, following some basic rules will usually yield the right result.

Start your search on the Internet. Real estate agents have websites that list REOs and then there are national companies like Foreclosures.com and RealtyTrac.com where by paying a monthly fee you can scour their extensive databases. 

While busy with the first step, get yourself pre-approved for a mortgage with a reputable lender. When the right property comes along, there often is no time to start looking for the home loan consultant and go through all the required paper work. By the time all that is done, the future dream home could be sold to someone else. Act early on this one.

Engage a trustworthy real estate agent to work with. Lenders generally use them to list their REOs and pretty much as a rule won't even deal with individuals. Auctions have been quite a bit in the headlines lately, but those are for the pros who know the market well. Besides, a large chunk of auction sales reportedly never close for one reason or another. 

This last point is very important. Repair costs of a REO can be more than you can stomach. Maintenance is low on the priority list of people facing mortgage foreclosure and upon leaving they can also take with them an appliance or two, among other valuable things. To make the purchase viable, repair costs need to be accounted for in the bid price.  

Happy hunting.

May housing numbers for Southern Nevada are mostly positive. Not too long ago all the key indicators were heading in the wrong direction, but that trend seems to be now history. Recent history for sure, but history anyway. The one truly worrisome category that keeps churning out high figures is the foreclosure filings and it may unfortunately stay that way for a while longer.

On the positive front, as reported by local research shops SalesTraq and Home Builders Research, resales grew 5.2% in May as compared to a year ago, totaling 2,606 homes sold. Bank foreclosures played a large role in this as lenders have slashed prices to unload properties they don't want to keep in their books. Attractive pricing has certainly nudged home buyers and investors off the fence where they've been sitting for the last couple of years. Median values have slumped over 20% from the high of $290,000 in October of 2006. As sales improve, it could also mean that further price declines are unlikely.

Roughly a half of all resales in May were foreclosures and sold for a median price of $215,000. On the other hand, non-foreclosure resales commanded a $239,000 price tag and new homes' median reached up to $269,990. Obviously the bank REOs, real estate owned, are very good value today and tend to drag down prices in the other two categories.

The gap between the REOs and new homes is especially wide and that has actually had a definite negative impact on the new-home sector. It has sold between 800 to 1,000 units a month for a while now when it used rack up figures double that just a year or two ago. Somebody might ask that why are they even building any new homes in this troublesome market. Bring it to a trickle, clear out the existing inventory and then start again with a nice built-up demand knocking on the sales offices' doors.

Anyhow, housing recovery is slowly gathering steam here in Las Vegas, but it'll have a rather long road ahead to real and sustainable health. The current tighter mortgage guidelines are complicating matters more than they should, as is the currently weak economy. With that said, there nevertheless is well-deserved optimism in the air.

U.S. Senate has been working for a long time on a wide-ranging housing legislation that should spell a lot of relief to the battered mortgage industry. Their intentions are certainly sincere, but sometimes they just get too eager to find solutions, hoping to fix everything in a matter of months. Which of course is unrealistic. And they also tend to listen to people who call themselves experts when they really aren't. They are just lobbyists representing a segment of the market that is looking to benefit from the changes.

The latest draft now working its way through the U.S. Senate has energized several home loan trade groups to protest a couple of items on it. One of them would require mortgage lenders to essentially decide what type of a loan program is best suited for the borrower. That clearly goes too far. The originator's role generally is to consult with the client and explain in adequate detail different products and what their advantages and drawbacks are. The final call still ought to rest on the borrower's shoulders. He has to take responsibility for his financial actions and no on else. If the law passes, mortgage originators can start looking for competent legal advice as some clients will end up in foreclosure and blame them for it.

The other issue is about the national licensing system for mortgage brokers and loan originators. The trade groups would like to see the program run by the federal government and not by the current entities, the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, who have been working for years on a new setup. For it to be truly meaningful and properly enforceable, it should be under the federal umbrella. It would then be one streamlined set of rules and no more. Easy enough.

The trade groups voicing their concerns are the Mortgage Bankers Association, U.S. Chamber of Commerce, the Financial Services Roundtable, The Consumer Mortgage Coalition, the American Financial Services Association and the Consumer Bankers Association. Some seriously influential players among them.

The mortgage and housing markets have been severely punished in the last couple of years, there's no denying it. The home loan industry, of course, covers the entire nation while the real estate field's troubles have been rather uneven. Some areas, like Las Vegas, lots of Florida and California, have suffered much more than others. Optimistically, some indicators are now popping up all over that perhaps the very bottom is here for many regions, or at least within sight.

In any case, one financial expert is heavily leaning towards an impending recovery. Edward Lampert's ESL Investments, a hedge fund presently owning large stakes in Sears Holdings and AutoNation, has recently purchased small positions in struggling U.S. home builders Centex Corp. and KB Home. Total ESL investments currently amount to over $11 billion, so the little bit over $10 million slices of each of these two firms at today's prices isn't all that much. Yet, it's a move where he obviously sees value that could be easily increased should his vision come true.

In addition, ESL has also bought shares in the mortgage segment, notably in CIT Group, a subprime lender, and PHH Corp., an originator and servicing outfit. Again, as with the home builders, the approach is quite cautious, more like making sure that ESL has secured at least a minor position in the market from the very beginning of its recovery.

As a bolder step, the hedge fund recently hiked its holdings in Home Depot to around 22.7 million shares with a value of $590 million. Last year it owned 16.7 million of those shares. This clearly translates into a much stronger belief that a rebound in the housing market is imminent. It'll predictably be mismatched, since each region has its own inherent market strengths and weaknesses.

This sector seems to have it all figured out. It's generally considered to include homes that go for upwards from $3 million at which level buyers seem to be little concerned about where the Las Vegas real estate market is, what mortgage rates are doing or how the national economy is behaving. They just go out to find a house to their liking and purchase it, often paying cash for it, too. As long as the money is available, it's usually going to be an easy closing since there is no need to deal with underwriting issues, meeting conditions and that sort of stuff.

Some of the ultra-luxury sales in the last several months took place at MacDonald Ranch, Shadow Creek, Queensridge, TPC Summerlin and Panorama Towers. In 2003 the top price for a home sold in Southern Nevada exchanged hands at $4.2 million while that number increased to $17.4 million in 2007 for a Shadow Creek property, according to GLVAR, or the Greater Las Vegas Association of Realtors. Clearly the values keep going up nicely in this market segment, apparently pretty much immune to what is taking place elsewhere in the valley.

To read the entire article, please click on the link in the first paragraph.

The air brakes were applied a while back to make an honest attempt to arrest the steady slide of the real estate market here in Las Vegas. The road down looked long and straight and ominous. At last, for the most part the pump action seems to be now working. The downward momentum is quietly leveling off, the foot can come off the brake and new energy is being infused into the hearts of valley residents as they sincerely wish this unique experience won't repeat itself anytime soon.

There are some positive official indicators that point toward better times, as was recently reported by the Greater Las Vegas Association of Realtors, or GLVAR. The single-family house sales number grew to 2,206 in May, a fifth successive monthly increase, which shows that buyers are gaining more confidence in the marketplace. And it is a nice 29.2% improvement from last year.

GLVAR also discloses that the median sales price stood at $236,692 in May, representing a small gain from April, something that hasn't happened in Las Vegas in a long while. Compared with last year's figure, it's still down 21.5%. Regardless, a gain is a gain and it broke a long-lasting trend south. This type of change can also have an all-important positive psychological effect on market participants.

The one segment on GLVAR's data that remains under cloud is the single-family resale inventory. It moved up again, although by just a little bit, to 23,348. It represents a fifth consecutive monthly increase, leaving experts to speculate when it will finally reverse course. Part of the reason to that appears to be that the homeowners who decided not to list last year due to the ice-cold market then are now more energized and jumped in this spring, providing a steady stream of listings that even the soundly-rising sales numbers can't beat. Not yet anyway.

The last couple of years have been truly a large test for the Southern Nevada housing and mortgage markets. Property values were heading south, sales stalled, the mortgage community decided to label, although it's now lifted, the valley a "declining area" and buyers generally pulled back to the sidelines to watch the mayhem. Yet, this spring has brought along a few positive signs of life to the battered industry.

And recently another upbeat report makes a case for a nascent recovery. House Prices in America review is put together by a research shop Global Insight and a bank-holding firm National City Corp. According to its latest edition, the median Las Vegas home price of $232,600 in the first quarter dropped 3.1% under the historical standard, or a line, that is considered the norm. In essence, the market here is now judged to be slightly undervalued. If it is, it isn't by much, so it can really be called a level, sustainable condition.

In addition, House Prices in America discloses that in the first quarter of 2007, a year ago, the local market was 22.9% overvalued at a median price of $286,100. With that said, the figures during this current downturn were the worst in the third quarter of 2006 when the overvaluation stood at 30.4%. This rapid, steep and speculator-fueled appreciation was one of the main reasons to the market's spectacular reversal of fortunes the city is now wrestling with.

In the same report, among the regional cities Loa Angeles is tagged as overvalued by 15.4% at a median home price of $432,200. So is Phoenix by 20.2% with a price of 224,900. Reno, a fellow Nevadan, is right around par on the historic scale, undervalued a tick at 0.2% with a price of $251,500.

Is the real estate market in Las Vegas now fairly priced? It definitely seems to be. As long as the range either over or under the historical standard is within, say, 5 to 7%, the situation can be called stable and sustainable. When it races up to double digits, look out. That's when it's time to sit back and carefully evaluate what's going on.